Recent hardships have affected my credit score but I would like to purchase a home soon

QuestionsRecent hardships have affected my credit score but I would like to purchase a home soon
Karine Lukis asked 4 years ago

Hello all,

 

Over the last 2 years or so my credit score has taken a nosedive. It went from low 700’s to mid 500’s due to several different factors. I have had several credit card accounts open for a couple of years now and during my last year of school I wasn’t working like I had in the past due to increased workload and other responsibilities in my life so I put a lot on my cards that last year and paid what I could when I could. I got a full time job almost immediately out of school and started paying down debt as much as I could. Late last year we needed to purchase a second car which we didn’t not have funds to purchase at the time so I went through a credit union and took out a loan large enough to purchase a car and pay off my credit cards in an effort to consolidate. Things were fine for a while but near the end of May 2016 I lost my job. I did have some savings and we were able to utilize those for a while but about 3 months prior to my loan being paid off we ran out of funds to be able to afford my monthly payments on that loan. Being young and dumb I put it off with the mindset that I would pay it as soon as possible. Needless to say I ended up defaulting on the loan for a relatively small sum. I did work with the credit union and paid the loan off about one month after the original due date thanks to some overage on a student loan my significant other took out. I found a job a few weeks later and have been paying down all of my debt as quickly as I can. With my income taxes I hope to knock out nearly all of my remaining debt so I can be debt free soon. My significant other does have a little debt but most of it is student loan debt which she doesn’t have to start making payments on until early June. 

My main questions and concerns are as follows. What can I start doing or continue doing to help my credit score recover as quickly as possible? It has been steadily increasing by about 10 points per month for the last few months but I would love to see that increase become larger. We would like to purchase a home as our current monthly rent eats up around 50% of our income due to living in a college town. We don’t want to keep renting either as our family needs more space than we could really afford by continuing to rent. Living costs are very low in our state so if we purchase a decent home we can easily cut that monthly payment by 30-50% even after taking into account a house payment, taxes, and insurance. We already have a budget put together and know what we can afford each month. The only problem is I know that my credit score is currently too low to qualify for a standard home loan. Based on my family’s size and total income we do qualify for FHA or USDA rural housing loans both of which I’ve looked at extensively. I’m just not sure how my recent default and current credit score will affect the likelihood of being accepted by one of these lending programs. Does anyone have any experience with these programs or know of other programs that we could consider?

 

Apologies for the long winded post.

 

Any advice would be greatly appreciated!

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